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From contracts to hiring and retention, many business matters hinge on employees' effectiveness at negotiating—a skill that HR should advocate, teach and put into practice.
On the top of the stack was a notice about when he would have to testify in court in a lawsuit against a now-penniless supplier. Below that was a proposed contract with a sole-source supplier demanding an exorbitant price. Next was a low-price agreement with a supplier with a record of erratic performance. Under that: a draft of an ambiguously worded agreement on who would be liable for product defects.
What that pile of paperwork revealed to the purchasing chief—we’ll call him “Ken” because he and his company asked not to be named—was that his company lacked negotiating competence. His purchasing agents, driven by price alone, negotiated flawed contracts. What’s more, he had failed to persuade his agents to change their behavior, reflecting his own negotiating weaknesses. And he realized that legal counsel allowed conflicts to escalate needlessly instead of negotiating acceptable resolutions.
Ken shared his assessments with the company’s HR director, “Sally,” and asked for her help in strengthening negotiating skills within the company. He said that because such skills were in short supply, the company was missing opportunities and incurring needless costs.
At first, Sally wondered why Ken didn’t simply get a sales coach to show his purchasing agents some new tricks, but she kept the thought to herself. Instead, she asked Ken for more details, listened and said she would get back to him later in the day. Though she may not have realized it, Sally was negotiating effectively.
Sally had just taken an MBA class on negotiating in business, and she called her instructor for guidance. He advised her to think about negotiation as a “corporate capability.” Moreover, he said, as HR director, Sally had the potential to play a pivotal role in developing this capability. He suggested that she view herself as the corporation’s resident chief negotiator, which would enable her to advocate effectiveness in negotiating, build negotiating competencies within the company, and practice effective negotiating.
A Core Competency
Negotiation pervades business. Your skill at negotiating affects your performance, satisfaction and quality of work life—and it affects your organization. A company’s negotiating capabilities can help it gain competitive advantage, reduce costs, increase profits and improve relationships. And HR professionals have shown they can help their companies develop those capabilities.
Negotiation, in which two or more parties exchange something of value to achieve mutually agreeable purposes, is undertaken for one or more of three purposes: to reach new agreements or renew expiring ones, to resolve disagreements and prevent conflict from escalating, or, most important, to change behavior.
When Ken finds another supplier as an alternative to a sole source, he negotiates a new agreement. When asked by a supplier to pay more because of rising costs, he negotiates a price adjustment to avoid a dispute. When Sally confronts an employee with an absenteeism problem, she negotiates a behavior change agreeable to both parties, lest discipline becomes necessary.
Generally, negotiations by a line manager or HR executive fall into two broad and increasingly overlapping categories—those internal to the firm, and those involving external parties.
Internally, you may negotiate peer-to-peer as a manager, employee or executive. You may negotiate as a superior with a subordinate, or vice versa. Other internal negotiations occur with unions, among different organizational units, between project teams and between boards of directors and their executive teams.
External negotiations include those between buyer and seller—the most familiar type—as well as those involving recruits, independent contractors, subcontractors, government agencies and community groups. Such negotiations may overlap and become multilateral rather than purely bilateral.
In short, your company’s executives, managers and employees engage in negotiations that vary in scope and importance. Some are blockbusters, such as mega-mergers. Others are routine and seemingly minor. But the little ones can add up to a huge total.
Where HR Enters the Picture
The point is simply that all negotiations, regardless of size, should be handled well, and, as an HR professional, you can make this happen.
Your aim is to improve the results of your company’s frequent negotiations. Poorly conducted negotiations can lead directly to problems such as breach-of-contract suits, lost business opportunities and the need to redo work. You want improved performance that increases profitable business. You want customers satisfied so they give you repeat business and refer other customers. You want employees to be satisfied, which helps with recruitment and retention. And you want to negotiate increased productivity—getting people to take the initiative to do the right thing the first time.
You also expect negotiations to lead to better relationships—not for a friendly working environment, as important as that is, but for improved bottom-line performance. Enriched relationships yield stronger communications networks, which can be used to disperse knowledge. You create an environment in which the exploration of new ideas—change—is encouraged.
Moreover, by improving the negotiating capabilities within your workforce, you reduce unproductive conflict. Note that your objective is not to suppress disagreement—the essence of conflict—because that could discourage essential change. Your aim is to minimize needless conflicts, which can escalate into expensive operational problems or litigation.
Thus, in your role as chief negotiator, you function as advocate, builder and practitioner.
Spreading the word. As an advocate, you maintain that negotiation is the preferred method of reaching agreement, changing behavior and resolving conflict. You advocate to empower your workforce at all levels. You make the case that if employees become better able to manage their own interests and handle their own conflicts, they gain a precious commodity—time—to do other things essential to success, such as attracting new business, creating products and anticipating and satisfying real customer needs.
Such advocacy is important because negotiation preserves the parties’ control over the outcome. It invests them in making the outcome a success; it compels them to assume responsibility. The company then needs only to ensure accountability through appropriate performance management. The parties take control and own the outcome, and there’s no need for the informal or formal involvement of third-party mediators or arbiters. And the costly escalation of disagreement is avoided. An unresolved conflict that escalates, involving the time of higher-paid managers and executives, can be an expensive drain on company resources.
Negotiating is the ultimate tool of empowerment. The employee or manager negotiates a solution and becomes a problem-solver, thereby generating countless additional opportunities for entrepreneurial rather than bureaucratic work to get done.
Building your workforce’s skills. Capability at negotiating is not inherited; neither is it acquired solely through experience. Being a good negotiator, like being an effective manager or leader, requires disciplined work. In fact, the roles of leader, manager and negotiator are highly interrelated. To negotiate well, you need to hone certain skills.
Effective negotiators share several characteristics, many of which a company can help develop among its employees, whether they are purchasing agents, sales representatives, recruiters or executives with broad responsibilities.
An effective negotiator must have a vision of what is to be accomplished, must be confident without being obnoxious or self-absorbed, and must be patient. The effective negotiator doesn’t get flustered and doesn’t agree to every proposal, but instead views negotiation as a chance to test limits and is willing to move on when things are not working out as desired.
Negotiators should also be able and willing to listen, to communicate and persuade, to think empathetically, to assert interests, to explore possibilities with an open mind, to persist in the face of adversity, to tolerate criticism or disagreement, to be team players, and to tolerate appropriate levels of risk.
Negotiating is a vital intelligence-gathering process that can help your company assess and manage risk. The information and experience acquired from negotiations should be analyzed and shared internally.
Practicing what you preach. The HR professional’s third function as chief negotiator is to be a practitioner. Opportunities for doing so are endless. HR managers negotiate hires, executive compensation packages, transfers, dismissals, new personnel systems and practices, and labor-management contracts.
In addition, the HR office is often the place where personnel disagreements over matters such as pay, performance reviews, discipline, promotion and reassignment are vented. In negotiating in such situations, HR can lead by example. This not only can produce desirable outcomes quickly—hiring the right person at the right price with the right performance expectations in place, for example—but also can prevent problems down the road.
Principles of Effective Negotiation
To advocate, build and practice negotiating to reach agreements, change behaviors, and resolve conflicts, HR professionals must know the core principles of effective negotiation. These principles apply in various contexts: buyer-seller; employee-manager; peer-peer; business-business; union-management. They are not about negotiating nicely or about sacrificing interests to promote congeniality. They are about achieving the right outcomes and setting the stage for future successes.
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